Asset-Level Transparency and the (E)Valuation of Asset-Backed Securities

69 Pages Posted: 1 Oct 2018 Last revised: 29 Apr 2022

See all articles by Jed Neilson

Jed Neilson

Pennsylvania State University

Stephen G. Ryan

New York University (NYU) - Leonard N. Stern School of Business

K. Philip Wang

Fisher School of Accounting, University of Florida

Biqin Xie

Pennsylvania State University; Pennsylvania State University

Date Written: May 27, 2021

Abstract

As of November 2016, SEC Regulation (“Reg”) AB II requires issuers of certain types of asset-backed securities (“ABS”) to disclose the credit-risk attributes of each asset in the underlying pool, a substantial expansion of prior disclosure requirements. We examine how ABS issuers’ asset-level disclosures under Reg AB II affect the (e)valuation of ABS by investors and credit rating agencies. Using difference-in-differences models that compare affected and unaffected types of ABS, we find that these disclosures improve the ability of initial ABS yields and credit ratings to predict the performance of the underlying assets. These results are concentrated in deals with above-median risk layering in the underlying assets and complexity in the tranching of credit risk. We further find that asset-level disclosures are associated with lower yields. Lastly, we provide evidence that most prospective ABS investors download asset-level information during the price formation period prior to ABS issuance.

Keywords: asset-backed securities; asset-level disclosures; Reg AB II; transparency; risk layering; credit rating quality

JEL Classification: G21, G24, G28, L1, M41, M48

Suggested Citation

Neilson, Jed and Ryan, Stephen G. and Wang, Philip and Xie, Biqin and Xie, Biqin, Asset-Level Transparency and the (E)Valuation of Asset-Backed Securities (May 27, 2021). Available at SSRN: https://ssrn.com/abstract=3247342 or http://dx.doi.org/10.2139/ssrn.3247342

Jed Neilson

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States
8148650327 (Phone)

HOME PAGE: http://directory.smeal.psu.edu/jjn12

Stephen G. Ryan

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street, Suite 10-73
New York, NY 10012-1118
United States
212-998-0020 (Phone)

Philip Wang

Fisher School of Accounting, University of Florida ( email )

Gainesville, FL 32611-7166
United States

Biqin Xie (Contact Author)

Pennsylvania State University ( email )

316 Business Building
Smeal College of Business
State College, PA 16802
United States
814-865-0572 (Phone)

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

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